Each month, the Commerce Department releases a statistic titled “Housing Starts” that measures residential construction activity.
This morning, the Commerce Department released April’s Housing Starts data (PDF) and the headline data reflected a 2.5% increase in new construction.
Markets had anticipated a 0.8% decrease. This coincided with a decrease in available homes, as shown on the graph at right.
Housing Starts details the number on residential units on which construction started in the reported month.
Housing Starts can provide terrific guidance on the future direction of our economy for several reasons:
- Home construction creates jobs in the construction industry
- Home builders spend dollars on raw materials, fixtures and appliances when building a home
- Home buyers spend money on furniture, electronics and services (i.e. movers) after buying a home
So, as more homes are built, more jobs are created, and more money is pumped back into the economy.
A hot Housing Starts number can predict strong economic growth 6-9 months out on the horizon and that is one reason why economists watch it intently.
Another reason Housing Starts matters is because the Federal Reserve is inflation-wary.
It has stated many times that growth is strong but that housing is dragging down overall growth to a more comfortable level. The housing sector, it believes, will create a gradual economic slowdown.
Today’s data may prove otherwise.
In response, expect mortgage rates to rise today on inflation concerns.